For some time adland (aka the advertising industry) has been facing something of an existential dilemma. Too many agencies, too few clients willing to spend too little money on agency services. Winning work means reducing margins, which puts the longer-term viability of many agencies at risk. Some call it a race to the bottom.
The industry is trying to adjust, to decide how best to evolve and endure. Recently there has been an urge for agencies to join a movement to 'ditch the pitch'. This calls for agencies to stand together and not pitch for clients who set unreasonable conditions.
The problem is that there's a term for industry players getting together to figure out how to make more money. It's called cartel conduct. It prohibits the following conduct between agencies.
- Refusals to supply: agencies getting together to agree not to supply particular advertisers is cartel conduct. Ditto working together on what might be acceptable terms.
- Bid rigging: agencies getting together and agreeing on components of a bid, or on some folks lodging less competitive bids or withdrawing from a bidding process, is also cartel conduct.
- Price fixing: agencies getting together and agreeing minimum pricing, or sharing pricing information to circumvent the 'race to the bottom', is verboten as well.
Cartel conduct has serious consequences. Maximum penalties start from $10M, and there's a trend towards penalties well in excess of that. It can also be prosecuted as a criminal offence which can carry jail time for individuals.
An agency deciding not to pitch for a customer or project on an understanding that other agencies will do the same risks carrying the degree of reciprocity required to trigger a cartel conduct contravention. The only way to avoid the risk is to act independently. Agencies need to choose their pitches, negotiate their terms and set their prices without regard to their competitors.
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